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iPhone replacement cycles slow down to four years, posing threat to services, says analyst

One of Apple's major earnings threats is the increasing likelihood of iPhone owners sticking old models instead of spending ever higher amounts on upgrades, according to a new analyst memo.

iPhones bought new ones are probably stored for four years, if not longer, Bernstein's Toni Sacconaghi said. In Apple's fiscal 201

9, it is estimated that only 16 percent of the iPhone installation base will be replaced in one form or another, contributing to the analyst's projection of a 19 percent drop in annual sales. By comparison, the 2015 accounts found about one third of the installation base buy new hardware.

Comparing the problem is that as much as 32 percent of the iPhones used can be used models, and many of their buyers can simply stay in the used market when they need better specifications.

"Current upgrade rates have fallen dramatically and may be lower than investors realize, the trend in iPhone sales could slow Apple's growing service sector, he added. The company is doing well with Apple Music and Apple News users, and goes into original video, but has traditionally tied up services to its hardware platforms. Without more devices, there can be a gap in how far subscribers will expand, and used buyers are less likely to spring for extra services.

Apple's Service Revenue will probably only grow 15 percent in FY2019, Sacconaghi concluded, versus over 20 percent in each of the previous three years.